Dick's Locations That Once Competed With Sports Authority Are Now Outperforming

Dick's Sporting Goods reported second-quarter EPS of $0.82, compared to consensus of $0.69 and guidance of $0.62–$0.72. Net sales increased 7.9 percent on a 2.8 percent increase in total comp versus consensus of -2.2 percent and guidance of -4.0 percent to -1.0 percent.

For the third quarter, the company expects a 2–3 percent growth in comp and EPS of $0.39–$0.42. The company also raised full-year EPS guidance to $2.90–$3.05 on a 2–3 percent comp growth, from the prior guidance of $2.60–$2.90 on a -1.0 percent to +1.0 percent comp.

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"Dick's stores that had been competing with now closed TSA doors are outperforming the balance of the chain and we continue to think that even after DKS raised guidance, there could still be upside to the 2H of this year," analyst Kate McShane wrote in a note.

TSA Closures

The company acquired the rights for 31 TSA leases but has not yet determined how many leases it expects to retain. The company has the potential to take market share from closed TSA stores.

However, Dick's remained cautious that some back-to-school spending, especially footwear, could have been pulled forward. But, McShane noted that last year's easier second half compares and the removal of a key competitor should enable the company to achieve its full-year targets.

Estimates

McShane, who sees an EPS CAGR of about 15 percent over the next three years, raised her 2016 (FY17) EPS estimate to $3.05 from $2.80 on stronger comp trends and 2017 (FY18) EPS view to $3.78 from $3.65 on incremental operating margin expansion.

"While DKS is no longer the low double digit multiple, value play that it was at the beginning of this year, we continue to believe that upside to numbers can still move the stock higher and that multi-year benefits from TSA's demise and margin expansion potential make DKS an attractive Buy," McShane added.

Shares of Dicks Sporting Goods closed Tuesday's trading at $58.76 and were down 0.92 percent at $58.22 at time of writing Wednesday. The revised price target of $68 implies potential return of 15.7 percent from Tuesday's close.

Full ratings data available on Benzinga Pro.